Gap Insurance Tax In Texas

Gap insurance, also known as guaranteed asset protection (GAP) insurance, is not taxable in Texas. It is a type of optional insurance coverage that protects you financially when you lease or finance a new car. This insurance covers the difference between the amount you owe on your car loan or lease and the car's actual cash value if it is stolen or totaled in an accident. While not required by law in Texas, gap insurance can provide valuable financial protection for new car owners, especially if their car is worth less than what they owe on their loan.

When is gap insurance useful?

Gap insurance is useful in situations where your car is considered a total loss. This could be due to a major accident, theft, or other damaging events like a fire. It covers the difference between the compensation you receive after a total loss of your vehicle and the amount you still owe on a car loan.

For example, if your car is three years old and has an actual cash value of $20,000, but you still owe $25,000 in payments, gap insurance will cover the $5,000 gap (minus your deductible). It is important to note that gap insurance does not mean that your insurance provider will pay you the full amount you originally paid for your car. Instead, it covers the financed amount you currently owe at the time of a covered accident.

Gap insurance is particularly useful for drivers who:

• Owe more on their car loan than the car is worth.
• Have a car loan that requires gap insurance.
• Have a lease that requires gap insurance.
• Have a new car that depreciates faster than average.
• Rolled over negative equity from an old car loan into the new loan.

In these instances, gap insurance can provide valuable financial protection and peace of mind. However, it is not required in all states, and the cost and availability of gap insurance can vary depending on your location and insurance provider.

Where can you buy gap insurance in Texas?

In Texas, gap insurance can be purchased either through an insurance company or directly from a car dealership as a standalone policy. While it is not a legal requirement in the state, gap insurance can be a valuable form of coverage for drivers with new vehicles, as it covers the difference between the amount owed on a car loan and the vehicle's actual cash value in the event of a total loss.

When considering where to buy gap insurance in Texas, it is recommended to first get quotes from your existing auto insurance provider, as coverage obtained directly from insurers is often more affordable. According to WalletHub, buying insurance from an insurer is usually cheaper, averaging around $7 per month as add-on coverage. However, it is important to ensure that the gap insurance covers all forms of loss, including accidents, theft, floods, and natural disasters.

If you are considering purchasing gap insurance through a dealership in Texas, it is advisable to compare their rates with those offered by auto insurers. The cost of gap insurance from a dealership can vary significantly, ranging from around $500 to over $1,000. The maximum amount a dealership can charge for gap insurance is limited to 5% of the loan value under Texas law.

• Associated Credit Union of Texas
• Allstate
• Greater Texas Credit Union
• USAA
• Texas DPS Credit Union
• American Modern Home Insurance Co.
• American National Property and Casualty Co.
• American Security Insurance Co.
• Balboa Insurance Co.
• Continental Casualty Co.
• Courtesy Insurance Co.
• Financial American Property and Casualty Insurance Co.
• First Colonial Insurance Co.
• Great American Insurance Company of New York
• Ironshore Indemnity Inc.
• Landcar Casualty Co.
• Lyndon Property Insurance Co.
• Markel Insurance Co.
• MIC Property and Casualty Insurance Corp.
• Old Republic Insurance Co.
• Old United Casualty Co.
• Securian Casualty Co.
• Sentruity Casualty Co.
• Service Lloyds Insurance Co.
• Spinnaker Insurance Co.
• State National Insurance Co.
• Transamerica Casualty Insurance Co.
• United Financial Casualty Co.
• Universal Underwriters Insurance Co.
• Work First Casualty Co.

Remember to carefully review the terms and conditions of any gap insurance policy before purchasing, paying close attention to exclusions and limitations.

Is gap insurance required in Texas?

Gap insurance, also known as a debt cancellation agreement or a gap waiver, is not a legal requirement in Texas. While the state mandates certain types of auto insurance, such as liability coverage, gap insurance is optional. It is typically considered by those who have recently leased or purchased a new vehicle and have the original loan or lease.

Gap insurance covers the difference between what your car is currently worth and what you still owe on it. For example, if your car is totaled and you owe $25,000 on your loan, but the car's market value at the time of the accident is only $18,000, gap insurance can cover the $7,000 gap. This can save you from having to pay this amount out of pocket if your primary car insurance doesn't cover the full loan amount.

In Texas, gap insurance is particularly relevant if you have a new car with a substantial loan amount. This is because new cars lose value quickly. As soon as they are driven off the dealership lot, they are considered used and their value decreases. This depreciation can outpace the rate at which you're paying down the loan, especially in the early years of a long-term loan.

If you decide to purchase gap insurance, it's important to note that it is not required as a condition of getting an auto loan or lease in Texas. In fact, the state prohibits a gap waiver from being a requirement of a car lease or loan. Additionally, Texas law limits the cost of gap coverage to 5% of the loan amount.

You can buy gap insurance in Texas from an insurance company or through your dealership as a standalone policy. It is recommended to first get quotes from your auto insurance company, as coverage directly from insurers is often less expensive. However, it's important to compare rates and review the terms of the policy to ensure it meets your needs.

In summary, while gap insurance is not required in Texas, it can be a valuable form of coverage for those who have recently leased or purchased a new vehicle and want protection in case their car is totaled or stolen.

How much does gap insurance cost in Texas?

The cost of gap insurance in Texas depends on where and how you buy it. A car dealership might offer it as a standalone policy for about $500 per year, with costs ranging from $500 to over $1000. You can also buy it through your insurance company as an endorsement to your collision or comprehensive insurance policy, which often costs much less at about $20 per year.

According to Texas law, the cost of gap coverage should not exceed five percent of the loan amount. This guideline can help you determine whether the pricing you're offered is fair.

When should you cancel gap insurance?

Gap insurance covers the difference between what you owe on your car and what it's worth. It is not a legal requirement, and you can cancel it at any time.

When your loan balance is less than your vehicle's value

It is recommended that you cancel your gap insurance once your loan balance is less than your vehicle's actual cash value. Gap insurance is only valuable when you owe more than what the car is worth. So, if your car's value is greater than the remaining loan balance, you are essentially paying for coverage that you will never use, even if your car is totalled or stolen.

When you sell your car or no longer need the coverage

If you sell your vehicle, it is advisable to cancel your gap insurance policy. Similarly, if you pay off your loan early, it is no longer necessary to maintain the coverage.

When switching to a new insurance provider or policy

You may also consider cancelling your gap insurance if you find a better deal with another insurance provider or policy. For example, buying gap coverage through your auto insurer may be cheaper than paying for coverage through a dealership.

When the policy is no longer cost-effective

Over time, as your car depreciates and your loan balance decreases, there may come a point when the cost of maintaining gap insurance outweighs its potential benefits. This usually occurs within one to two years of purchasing a new car.

It is important to review the terms of your gap insurance policy and compare it with other options before making a decision to cancel. Cancelling gap insurance means you will no longer have coverage for the difference between your vehicle's value and the amount you owe on it in the event of a total loss.

Frequently asked questions